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AP Microeconomics

Subjects : economics, ap
  • Answer 50 questions in 15 minutes.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit

2. A very diverse market structure characterized by a small number of interdependent large firms - producing a standardized or differentiated product in a market with a barrier to entry

3. The change in quantity demanded that results from a change in the consumer's purchasing power (or real income)

4. Ei = (%dQd good X)/(%d Income)

5. Demand for a resource like labor is derived from the demand for the goods produced by the resource

6. The downward part of the LRAC curve where LRAC falls as plan size increases. This is the result of specialization - lower cost of inputs - or other efficiencies of larger scale.

7. The proportion of the tax paid by the consumers in the form of a higher price for the taxed good is greater if demand for the good is inelastic and supply is elastic

8. AFC = TFC/Q

9. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage

10. The ability to set the price above the perfectly competitive level

11. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic

12. Ed = 1

13. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity

14. The sum of consumer surplus and producer surplus

15. The price of a good measured in units of currency

16. Excess demand; a shortage exists at a market price when the quantity demanded exceeds the quantity supplied

17. Es = (%dQs) / (%dPrice)

18. The difference between total revenue and total explicit costs

19. The rational decision maker chooses an action if MB = MC

20. The total quantity - or total output of a good produced at each quantity of labor employed

21. For one good - constrained by prices and income - a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received

22. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus

23. The output where AVC is minimized. If the price falls below this point - the firm chooses to shut down or produce zero units in the short run

24. The difference between the monopolistic competition output Qmc and the output at minimum ATC. Excess capacity is underused plant and equipment

25. Ed = 0 - no response to price change

26. The lost net benefit to society caused by a movement away from the competitive market equilibrium

27. The imbalance between limited productive resources and unlimited human wants

28. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price

29. Ed = (%dQd)/(%dP). Ignore negative sign

30. Total product divided by labor employed. APL = TPL/L

31. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.

32. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.

33. The least competitive market structure - characterized by a single producer - with no close substitutes - barriers to entry - and price making power

34. Occurs when LRAC is constant over a variety of plant sizes

35. Exists at the point where the quantity supplied equals the quantity demanded

36. The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price

37. Exists if a producer can produce more of a good than all other producers

38. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good

39. The more of a good that is produced - the greater the opportunity cost of producing the next unit of that good

40. AVC = TVC/Q

41. The output where ATC is minimized and economic profit is zero

42. The study of how people - firms - and societies use their scarce productive resources to best satisfy their unlimited material wants.

43. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.

44. A firm that has market power in the factor market (a wage-setter)

45. The mechanism for combining production resources - with existing technology - into finished goods and services

46. Exists when the production of a good creates utility for third parties not directly involved in the consumption of production of the good

47. TR = P * Qd

48. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter

49. Entry of new firms shifts the cost curves for all firms downward

50. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand